Shorts Flock to Hollysys Amid China Scrutiny: Chart of the Day

June 20 (Bloomberg) -- Short sellers are more bearish on
Hollysys Automation Technologies Ltd. than any other stock in an
index of Chinese companies trading in the U.S., following
investor and regulatory scrutiny of the group.

The CHART OF THE DAY shows short selling on Beijing-based
Hollysys jumped to a high of 16 percent of its outstanding
shares on June 13, according to Data Explorers, a New York-based
research firm. That compares with 4.5 percent on April 1 and 1
percent at the end of 2010. The shares fell 35 percent in the
U.S. this year through June 17.

At least eight China-based companies have had registrations
revoked by the U.S. Securities and Exchange Commission since
December and more than 24 have disclosed auditor resignations or
accounting problems to the agency since March, SEC Chairman Mary
Schapiro wrote in an April 27 letter. In a short sale, a trader
borrows shares and sells them, profiting if the price drops by
buying back the stock at a lower price.

“Investors are concerned about Chinese stocks listed in
the U.S. after fraud allegations against some of these
companies,” said Will Duff Gordon, a senior research analyst at
Data Explorers. “That concern is affecting all stocks in the
sector, with Hollysys being among the most targeted,” he said.
“Short interest on the stock has gone from almost nothing to a
very significant level in a relatively short time.”

Jennifer Zhang, a spokeswoman for Hollysys, didn’t respond
to phone calls or e-mail messages sent over the weekend and
today during regular business hours in Beijing.

The Bloomberg Chinese Reverse Mergers Index, which tracks
78 companies that gained U.S. listings through the purchase of
shell corporations, plunged 48 percent in 2011 through June 17.
Sino-Forest, a timber company that trades in Toronto, lost 71
percent in two days after short seller Carson Block of Muddy
Waters LLC said it misrepresented its holdings. Sino-Forest,
which isn’t in the Bloomberg index, denied the allegations.